Reverse logistics

Zara may be in the midst of changing the parameters of e-commerce returns for apparel retailers.  

In May, the company announced that U.K. customers will be charged 1.95 pounds, or about $2.45, for customers to return online purchases to third-party drop-off points. Customers are still able to return online purchases at any Zara store in the U.K. free of charge. 

The returns system is already in place for Zara in other European markets, including Belgium and the Netherlands, but most e-commerce shoppers opt to complete their returns in stores. It's unclear if the charge is going to come to the U.S., as the decision is made on a market-by-market basis.

Charging a fee for returns is not new and is seen sometimes with products like electronics, according to Mehmet Altug, associate professor of operations management at the School of Business at George Mason University. “From a return volume perspective it’s a good thing. But, on the other hand, from a profitability perspective, it has implications. One has to be careful with the price, the demand competition … From a profitability perspective if you're the only retailer doing that in your sector, in your industry, then you might start to face some demand issues. Customers may start to go to another retailer.” 

As retailers navigate high return rates and thinner margins due to supply chain pressures, will it become the norm to charge for returns? 

The state of returns

E-commerce in the U.S. grew 30% in 2020, which is the fastest growth rate since 2002, according to Forrester. During that time, clothing, accessories and footwear as a group accounted for 19% of all U.S. e-commerce sales growth. Forrester projects that digital sales in the clothing category will reach 47.5% by 2024. 

However, retailers have a problem when it comes to e-commerce, specifically when it comes to apparel and footwear, and that is returns. In 2021, shoppers were expected to return over $761 billion in merchandise, with about $218 billion coming from online purchases, according to the National Retail Federation. The category with one of the highest return rates? Clothing.

And while retail’s response to returns historically has been to make it as easy as possible for shoppers, that may be changing. Especially as companies are currently taking a hit on margins due to increased fuel, materials and other supply chain costs. 

Over the years, an increase in speedy e-commerce paired with generous return policies and inconsistency in apparel sizing has all led customers to bracket their orders. Bracketing involves customers buying multiple sizes, colors or styles of an item, knowing they will return some of what was purchased. Many people do it to navigate complicated or erratic sizing issues with clothing. However, shoppers also use it as a way to simply try on clothing. 

“The bedroom is now our dressing room, or the living room is now our dressing room for products we buy, clothing especially,” Tony Sciarrotta, executive director of The Reverse Logistics Association, said in an interview. “Zara recognizes that the costs have gotten enormous. If you’re shipping three garments for a person, and they’re only expecting to buy one, that’s a 66% return rate. So that’s the nightmare of the apparel industry. And I applaud them. Somebody had to do this.” 

Zara taking on the issue of returns may be an important test case for retail, simply due to its scale. Zara and Zara Home combined have nearly 2,500 stores and brought in nearly $21 billion in net sales in 2021, according to the company's latest annual report. The retailer recognizes itself as one of the biggest international fashion companies, with parent company Inditex acting as one of the world’s largest distribution groups. 

But, just like Best Buy put limits on returns many years ago, Sciarrotta said that Zara may become stronger because it has put policies in place regarding returns. "It's a goal to be a leader. It's a goal to be growing your business. But, you can't be growing your business as most e-commerce companies did without looking at the end-to-end cost of your business," he said. 

Returns as a marketing opportunity

Free returns have been part of expectations regarding e-commerce shopping for years. 

“My feeling is consumers feel returns are table stakes,” said Bill Catania, founder and CEO of OneRail. Ordering multiples is how people shop, he said. “That’s how we’ve been conditioned. Because Amazon notably — and some others — have removed so much friction from that process.” 

Deciding on return policies can be part of a larger discussion on how retailers decide to market to a shopper. With Zara offering free in-store returns, the company has an opportunity to get shoppers to have a physical retail experience in addition to their digital encounter with the brand. That is a potential setup for another purchasing opportunity, and a circumstance for the shopper to have a deeper connection with the company, according to Altug. 

Instead of seeing a return as a penalty, companies can encourage different behavior from customers, like giving a small discount if someone opts out of a return, Altug said. “There’s a positive perception, because then you’re being rewarded,” he said. “There’s a bit of a psychology component here.” 

And while Zara's new U.K. return policy may push people to complete returns in stores, a number of shoppers are sharing their experiences on social media. Namely, that they are encountering long return lines. 

Is there ever a time when your returns queue does not look like this!? It’s ridiculous, particularly when your other counters are empty @ZARA_Care pic.twitter.com/0E3hF7YOjo

— Georgia (@glstweets_) June 5, 2022

45 mins in zara returns. Remind me to never agree to this again

— MG (@garno38) June 3, 2022

Although some people have the ability to decide whether they want to complete transactions in stores or online, some customers are noting that extended sizes are only available digitally. That means customers who shop for larger sizes have to make decisions about returns only based on e-commerce and may have to take the hit on the return fee if they don't live near a store. 

Zara is going to start charging for returns, but anyone over a size L (which is around a size 14) can only shop online because they barely cater for these sizes in store. So this, to me, is a fat tax.

— Kelli Jaine Blanchett (@KelliJBlanchett) June 2, 2022

Creative solutions and the future of returns

While e-commerce returns are free at Zara stores, shoppers will be charged a fee for items that are returned at third-party drop-off points. The policy was brought about for sustainability reasons, with the understanding that it is better for products to be returned to stores than for delivery drivers to pick up small quantities from regional drop-off points.

Those third-party drop-off locations are throughout the U.K. and include places like convenience stores and newsagents that accept parcels on behalf of retailers. 

Third-party companies may provide many solutions regarding the future of e-commerce, according to OneRail's Catania. Large companies have dense networks. That means if many deliveries are happening, companies can potentially do returns through product pickups at people’s homes because they have the density and scale to do so. However, smaller retailers may be at a disadvantage because costs for pickup would be too high. 

That brings in the potential for companies to get creative around deliveries and returns, according to Catania, where retailers can form coalitions in order to crowdsource delivery and returns. “The concept of crowdsourcing will allow you to achieve that density and scale a lot faster. Just imagine if there were four or five e-tailers, not just bricks and mortar, strictly e-commerce companies that could pool their return demand together.” 

Amazon has done it with Kohl’s, with Catania referring to it as “coopetition,” a concept where retailers can be both competitors but serve as partners through a combined returns program. 

A number of business models could emerge that are strictly focused on returns, such as an aggregate return model that is across retailers that is based on a subscription. “You have to start getting creative,” Catania said.

Before the pandemic disrupted almost every way Macy's did business, the retail giant had announced Polaris, a three-year plan to position itself for growth.

The plan always included a supply chain redesign, but as Macy's tells it, the pandemic accelerated the plan.

"Supply chain is critical to Macy's, Inc.'s growth plans, and the key driver to overhauling our supply chain is tied to how the customer is shopping today and meeting customer demand in an omnichannel model," Dennis Mullahy, Macy's chief supply chain officer, wrote in an email. "Our supply chain must support the different ways customers shop, whether that's inside the store, picking up a package at the store or ordering an item from our website into their home."

By having a supply chain that looks at in-store and warehouse inventory as a whole, the retailer says it can strengthen its margins and get items to customers quicker and in the ways they prefer.

"There's a broader shift going from store shopping and online to a blend of the two," Carlos Castelán, founder and managing director of The Navio Group, said of retail right now. "A much faster and tighter supply chain is critical. If you have that speed, it becomes easier for customers to shop with you. Speed really helps from a top of the line perspective."

Scrapping a legacy supply chain to get items to customers faster

Macy's old supply chain met customers where they shopped: either in store or online.

"Our legacy supply chain separated out store and digital inventory and distribution," Mullahy wrote. "Our new model will leverage all of our assets much more productively and improve customer satisfaction by increasing speed of delivery as well as generate efficiencies in our operations and inventory utilization."

As part of the overhaul, Macy's is looking at how to increase fulfillment capacity in their stores to get products to customers faster and lower delivery costs. That includes "evaluating the ability of our current facilities to drive more through automation, process change and increase productivity," Mullahy wrote.

Macy's is using data and analytics not just to get items to customers faster, but also to improve inventory forecasting and allocation and package consolidation, so customers receive fewer packages for one order if they opt to shop online.

As part of the process, Macy's is also assessing "the balance of the network to identify buildings in need of replacement or investment," Mullahy added. The company is expanding buy online, pick up in store and next-day delivery, to "offer customers more options and alternatives to get the product they want when they want it."

Savings at the margins

Macy's saw 4.6 million new customers in Q1 2021, up 23% from Q1 2019, according to earnings reports. The company believes momentum will continue into the rest of 2021, especially as the country prepares to return to offices in some form, and the back-to-school shopping season kicks off.

Getting items to customers faster and efficiently is crucial for any retailer to sustain this kind of growth. A strong supply chain will "ultimately improve your margin because you're taking product closer to a customer's home," Castelán said, which will reduce costs from a last-mile perspective.

A strong supply chain also allows retailers to shift product to where it needs to be. For example, if a rare winter storm were to hit Florida or Texas, a quick and nimble supply chain could move winter coats from the Midwest or Northeast "to where you can sell those products for full price and you won't have to mark down that product at a local store," said Castelán.

This can also create savings on reverse logistics and returns. "What you don't want to have happen is a [seasonal item] sits at a customer's home and they bring it back and it sits a little bit longer and by the time it's back on the floor or online it's marked down or just not seasonally relevant," Castelán added.

For this reason, Macy's is focused on the return process as well.

"We believe that we can ... improve on the return experience, making it more seamless for the customer and providing faster re-shipment and replacement," wrote Mullahy. That also includes launching a new return process within their app.

The Polaris strategy had been put into place before the pandemic, and Mullahy said that priorities about providing customers with shopping options that best fit their lifestyles didn't change. But the increased demand led the company to "focus more on the integrated fulfillment strategy and alternative fulfillment options that include pick up in store, same day delivery, increased use of store fulfillment and faster delivery to customers' homes," he wrote.

"In reverse logistics, everything is a loss — everything," said Tony Sciarrotta, executive director of the Reverse Logistics Association.

The rapid spread of e-commerce to more subjective and less-predictable purchases like apparel and consumer electronics, paired with some controversial, but common, consumer behavior like ordering multiple sizes with the intention of only keeping the best-fitting one, mean that e-commerce returns will surpass brick and mortar returns — in dollar amount — within two years, according to Sciarotta.

Though he conceded that some technologies, like artificial intelligence or augmented reality can help consumers make better purchases that they are less likely to return, the total tonnage is unlikely to decrease. Consumers expect returns to be free, easy and fast, so the burden is on supply chains to take the cost out of what is inherently a loss.

The dollar value of returns reached 10% of total retail sales for the first time in 2018, and though he expected this eventuality to grab the attention of supply chain professionals sooner, Abe Eshkenazi, CEO of the Association for Supply Chain Management, told Supply Chain Dive the issue was top of mind for attendees at this year’s conference due to the convergence of several issues. The now unignorable growth in return volume is just one.

Realizing the value of returns

Concurrent with growing awareness that returned merchandise is becoming too large a problem to ignore, it’s also increasingly viewed as a financial opportunity that shouldn’t be squandered, Eshkenazi said.

"I think what organizations are recognizing now is that the reverse logistics supply chain is a significant market opportunity for them," he said. "It used to be just an aftermarket and a cost of doing business — now it’s a revenue source or a potential revenue source."

But even if supply chains understand their returns have value, organizing these products in a productive way is an operational challenge that varies in difficulty with the nature of the product in question and the complexity of the supply chain.

Returns from audio technology company Bose, for example, touch 22 different points on the journey back from the customer to the manufacturer — presenting a lot of complexity to unravel and operational cost to mitigate against the selling price of a "refurbished" or "open box" product, Sciarotta said.

For many manufacturers, the solution has been to hand off the responsibility of processing and reselling to retailers. This is a fairly recent development driven by finance departments seeking to stabilize the associated costs and not necessarily the best operational or even revenue-based decisions, according to Sciarotta.

"Many brands have decided that they would rather ask the retailer to get rid of it," he said. "Ten to 15 years ago major retailers were sending 75% of returns back to the manufacturer. Now they keep 75% and get rid of it through consolidation loads."

Some retailers also hand their returns off to 3PLs. FedEx processed one million returned Dell computers last year, Sciarotta said.

But offloading the operational responsibility for returns presents a reputational risk, he said, and manufacturers with consumer-facing brands should think twice before doing so.

"Manufacturers are not considering the brand risk of their products circulating after return," Sciarotta said.

Analyzing returns from end to end

One way to ease the operational burden of returns is through new service offerings from the like of startup Happy Returns. By processing, evaluating and batching returns at a network of "returns bars" Happy Returns creates a nearly standard cost for each returned item, while leaning into the strong customer preference for in-person returns with instant refunds.

"The ability to offer in-person returns that allow for shipments to be aggregated and returned in bulk also provides a cost-effective alternative to return shipping. The financial burden of returns is one that can no longer be ignored," Happy Returns CEO David Sobie told Supply Chain Dive.

Sobie explained the quantity of returns is somewhat stable most of the time for most retailers or direct-to-consumer brands, with spikes around new product launches and promotions. It's the cost of each return that varies based on where it’s coming from and where it needs to go to be evaluated and recirculated. Happy Returns stabilizes that cost, while palletizing the returned items so they are easier to receive and process.

Once received, Sciarrotta said that for nearly any supply chain, same-day processing and disposition should be the ultimate goal.

Beyond how returns are gathered, processed and financially accounted for, experts at ASCM 2019 emphasized reverse logistics is not just an aftermarket problem. The issue must be factored in at every link in the supply chain in order to minimize returns and realize the opportunity of reverse logistics — as a revenue driver and as a lens through which businesses can see their waste and environmental impact more clearly.

"What’s happening is that the definition of sustainability has expanded beyond the environmental aspect that used to be the only discussion point for organizations on sustainability. Now it includes risk mitigation, now it includes resiliency, now it includes agility," said Eshkenazi.

Looking at returns, and sustainability, from end to end means scrutinizing a less-acknowledged, but equally important element of the reverse logistics juggernaut: the nature of the products themselves. Products designed to have short life cycles, like much of the apparel sold today, or unrepairable consumer electronics, lose value quickly.   

Sciarotta spent years managing returns at Phillips where he was granted the authority to block new products headed to market if they were at high risk for returns. This may be an extreme example of reverse logistics guiding a company’s behavior, but it’s proof that thinking about returns from end to end isn’t a futuristic concept.

"It had been sort of the wild west for a long time — thought of as a cost issue as opposed to a revenue item. I think what organizations are recognizing now is that the reverse logistics supply chain is a significant market opportunity for organizations. So now we’re seeing the extension of the full end to end supply chain," said Eshkenazi.  

Returns may be primed for change.

Returns have always played a part in retail operations, as companies strive to make them painless in the name of customer service. The pandemic has sped everything up, though, including e-commerce, which heavily contributed to the rate of returns last year. The National Retail Federation said consumers returned an estimated $428 billion in merchandise in 2020. That means for every $1 billion in sales, the average retailer is incurring $106 million in merchandise returns.

Up until now, retail's response to this topic has been to make returns as easy as possible for shoppers. While many companies see it as a part of doing business or simply decide to take the financial hit that returns create, expectations around returns may not be sustainable for the environment or as a long-term business model.

At the same time, consumers have a growing awareness around issues of sustainability and the pandemic has played into that awakening. According to a survey by AlixPartners, 71% of American consumers are now more concerned for the environment, and 28% say it is impacting their buying decisions.

All of this means that both retailers and customers are at a crossroads when it comes to returns. While shoppers are beginning to pay more attention to issues of sustainability, they haven't fully made the connection to how returns play a larger role in those efforts. And, while retailers can see returns are impacting their businesses, they aren't currently making decisions to account for them financially.

What customers don't understand about returns

The biggest misunderstanding consumers have when it comes to returns is that, in most cases, their product doesn't end up back on a shelf.

"Consumers have this perspective that, I don't want this or it's not quite right and I send it back and it's going to go back on the shelf for someone else to buy," said Joel Rampoldt, a managing director in the retail practice at AlixPartners. "That actually happens very, very rarely."

"The cost of inspecting that good, repackaging it, getting it back on the shelf, the reverse logistics — all of that often outweighs the value of the good from being sold the second time," Rampoldt stated. "So, consumers have environmental concerns about the way they shop, and environmental concerns about e-commerce. But, they don't yet understand the linkage."

What really ends up happening to those goods? In some cases items can be restocked and resold, but returned products are likely to be liquidated, destroyed or sent to a landfill.

Tony Sciarrotta, executive director of the Reverse Logistics Association, said he's learned that consumers will often not provide a retailer the real reason for an in-store return and instead tell it "the first thing that they think" will be approved.

With around five billion pounds of returned goods ending up in landfills annually, returns also take a toll on the environment in ways that consumers may not completely have thought through, including carbon emissions, packaging and plastic waste, according to a recent Coresight Research report. For example, an estimated 16 million metric tons of carbon dioxide were emitted from the transportation of returns last year.

What retailers don't understand about returns

Free, no-hassle returns have become part of the shopping experience that customers have come to expect. But, is it the best thing for the retailer, the customer and, ultimately, the environment?

Perhaps not. "No one wants to be the first to say, 'Actually, we are going to impede you,'" Rampoldt said. "So retailers are sort of stuck. Do we try to educate consumers and tell them, 'Well, a lot of the stuff that you return actually ends up in a landfill? Well, that makes us look like idiots.'"

No-question returns have become an expectation, and, if the process is frictionless for a customer, a potential point of differentiation in a saturated market.

Furthermore, the recent trend of allowing a consumer to keep a product rather than return it because it's ultimately cheaper for the company can be a dangerous practice. "It's not a sustainable business model," Sciarrotta said. "You're saying that your brand doesn't matter, because that could wind up in a junk pile with your name on it, it could wind up in the flea market, it could wind up on Craigslist with somebody bad mouthing it and saying, 'I just want to sell it for 10% of what I paid for it.' You're giving up your brand."

Yet, consumers are increasingly interested in how their shopping habits are contributing to sustainability. In a study by Kearney in April 2020, nearly half of consumers said the pandemic made them more concerned about the environment, and 11% said they shifted their purchases based on environmental claims. Additionally, around 78% of consumers said companies could be doing more to help them make decisions that improve environmental outcomes. Gen Z in particular is very clued into buying from brands that are sourced responsibly, environmentally friendly and support social justice causes.

Those customers who are already concerned about environmental issues are primed to change their behavior. Therefore, it may be the retailers that have a foundation in sustainable practices that can turn the tide to make consumers pause and ask if a return is truly necessary.

"You could fix the margin hit from returns tomorrow, no problem. You just don't make them free, and you don't make them easy," Rampoldt said. That decision, of course, could create another problem of customers backing away from a company because they are deviating from an industry standard and expectation. "So that's the trade-off that we're dealing with here. And right now everyone is looking at everyone else saying, 'What are we going to do about this?'"

The apparel problem

While returns are problematic for all shopping categories, apparel returns stand out as being an extreme point of friction. According to Coresight Research survey findings, at 46.5%, clothing was the most returned category for respondents over the past year. That's nearly double the next highest product category of returns, electronics, which came in at 25.9%. The high rate of apparel returns may be, in part, intensified by first-time online apparel shoppers due to the pandemic.

Yet, the common practice of bracketing, where shoppers buy multiple sizes, colors or styles of an item, knowing they will return some of what was purchased, pre-dates the pandemic.

"When we talk about returns specifically, I think fashion apparel is particularly problematic, especially from an online perspective," said Shelley E. Kohan, adjunct instructor at Syracuse University's Whitman School of Management.

What can be highly problematic for a retailer is the timing of when a return happens. "With goods that are basic style — so polo shirts, T-shirts, anything that's basic, standard stock item that sells year-round — the timing of the return may not have a significant impact. However, for fashion-related items, this is where it gets tricky," she said. "If returns come back to the retailer after the fashion has passed, those products will either go straight to markdowns or … they will end up either at an off-price retailer or unfortunately in a landfill."

Deborah Weinswig, CEO and founder of Coresight Research, also brought up the timing of returns in a conversation about the company's survey findings. If a consumer buys something and it doesn't fit correctly, for example, it can just sit at their house, waiting to go back to a retailer.

"The merchandise is getting stale," she said. Furthermore, there isn't a connection being made between the timing of returns and how it can impact the environment. "It's not this kind of, 'Oh my gosh, I need to get it back to the retailer so they can sell it so I can reduce my carbon footprint.'"

While timely returns can help out both the environment and a retailer's bottom line, the bigger solution is to give consumers what they want in the first place. Technology is playing an increased role in aiding shoppers to select the correct apparel item online. Zeroing in on fit can be helped by virtual sizing apps or tech that has been embedded in a retailer's website, which can lead consumers to a correct size based on their specific measurements.

In addition to technology, adding correct signage both in stores and online can assist shoppers to purchase the correct product. "The size that you put on a garment, that you pretend it will be a medium when it's not, or size six or eight when it's really a four — those are retailer and manufacturer responsibilities," Sciarrotta said. If those elements aren't clear, "it's an invitation to returns," he said.

It also means that merchandise will be off the floor (or out of the distribution center) for the length of time a customer has possession of products trying to make a decision on what to keep. If a shopper buys three products and returns two, it means that the retailer just took three products out of stock that are now unable to be purchased by another consumer. "If those goods come back after the season, not only are you losing the sale of one item, you're losing the sale of two items that might go directly to the landfill and never even see an off-price retailer," Kohan said.

Creative returns solutions

As consumer environmental awareness increases, and as retailers take the financial hit of increasing return rates, there are some ways to rethink the returns process while still providing superb customer service.

To take control of returns, many experts argue that a position is needed in the C-suite to execute on a company's vision to streamline operations and commit to environmental change. That person would be in charge of reverse logistics or returns management, but launching the role may be difficult because of its potential to have a negative connotation.

"The closest you might get is there might be a C-suite sustainability person that might actually give some thought to that once in awhile, but it's not their primary focus," Sciarrotta said. "Unfortunately, returns responsibility falls under, very often, supply chain where it doesn't belong. Customer service — sometimes it belongs there." But, Sciarrotta argues, the sales department lacks accountability after a product is out the door.

Others say that making the financial impact behind returns transparent may be a better approach. "What would help is just making the cost of reverse logistics very, very clear, so that it just doesn't get absorbed into an overall margin number," AlixPartners' Rampoldt said.

A company understanding the financial impact of returns may also help increase a retailer's bottom line. "What's the tool that most retailers use? They look at comp sales … nobody looks at returns," Michael Relich, interim CEO of PacSun Eddie Bauer, said in a recent webinar with Coresight Research. "And so everyone's focused on, 'OK, what were my sales yesterday?' But nobody looks and says, 'Well, what were my returns yesterday?' And the big thing that drives that is that the data is siloed throughout the organization."

Other retailers are tackling the problem through creative liquidation processes. This fall, eBay announced a partnership with Optoro to streamline the resale of returned inventory. Together, the companies allow retailers to sell returned and excess inventory to eBay sellers. Those sellers, in turn, can pull product information from the lots and create individual listings to sell through their eBay stores.

"[W]ith 185 million buyers, the odds are a seller will find the right person to purchase an item that may have previously been returned," Ashish Chhabra, eBay's vice president of selling, North America, said in emailed comments. That partnership and the company's Certified Refurbished program are tools that "take aim at the challenge of excessive waste by extending the life cycle of both new and gently used products, thus diverting items from a landfill."

But, one of the most important catalysts regarding returns may come from increased consumer awareness. Kohan sees "a major shift" coming out of the global health crisis, including a deeper understanding of the environmental impact of purchasing decisions.

"I anticipate over the next few years you're going to see a massive shift into more environmentally purchasing and a reduction in the mass consumption of products," she said. "We all had a major wake-up call that actually nature is in charge. And nature is calling all the shots."

After a year of temporary closures, rapid and extreme shifts in product demand, and tidal shifts to more digital and omnichannel shopping, retailers had to decide, learn and execute more quickly than ever before. All of that put stress on retailers' supply chains and the personnel making them function.

The response to a fast-changing world and unpredictable future is captured in an all-encompassing byword: agility. It's a hard word to avoid when describing how retailers navigate and survive the unending torrent of challenges the past year and a half has brought. In many cases, those were challenges that already existed for operators but were exacerbated and accelerated by the pandemic.

"Agility," along with other bywords like "resilience," is tough to define, partly because it's a catchall for a set of practices, and also because retailers find different ways of becoming agile. In many cases, it may simply mean pivoting as quickly as possible to respond to a sudden change in demand.

But speed alone can't guarantee survival. Tony Zuazo, Dollar General's executive vice president of global supply chain, noted at the National Retail Federation's "Retail Converge" conference that a company can be fast in its supply chain but not necessarily successful. "We like to balance the speed with a cost lens and also a quality lens," Zuazo said at a panel on supply chain disruptions.

To help the discounter keep product moving quickly, while minimizing costs, Dollar General has a single integrated distribution platform, according to Zuazo. That means a store can be moved from one distribution center to any other in the network and receive goods by the next day, which is key to minimizing disruptions and keeping up with Dollar General's monster footprint growth.

Also on the panel was Colin Yankee, who heads up supply chain for Tractor Supply. Yankee defined agility as the ability to build options into the retailer's supply chain and use those to serve customers.

That means, in turn, assessing product flow options in the sourcing base, lead times and the mix between exporting and domestic sourcing, capacity within vendor and logistics third-parties, and constraints within the entire supply chain.

'Massive volumes of returns'

Reverse logistics came to the fore last year as well. More online shopping than ever before meant more returns. The NRF has estimated that consumers returned $428 billion worth of merchandise in 2020, or about 10.6% of all retail sales that year.

Retailers that, amid the temporary closures, pivoted to being digital-first businesses also had to quickly adapt to the volume of returns coming in.

At American Eagle Outfitters, that not only meant a larger volume of returns, but those returns were coming in from different points than in the past.

After the retailer closed its stores in March 2020 and pivoted to online sales, American Eagle's two U.S. distribution centers soon were deluged with multiple weeks' worth of backlogged returns that normally would have entered the supply chain through the company's stores, according to Brandon Friez, vice president of supply chain transformation at American Eagle.

"Our distribution centers weren't really equipped to deal with massive volumes of returns coming," Friez said at another panel during NRF's virtual conference. "So on top of the growing e-commerce business, the growth of returns, we really outgrew the systems that we had in the distribution center."

American Eagle, working with Optoro, which sponsored the NRF session with Friez, worked to speed up the time between a return initiated by the customer and a product moving back into stock for a resale, as well as to understand why customers were making returns in the first place. Friez said the span between an item being returned and restocked went from a multi-week process to a multi-day process.

Today, "returns are coming in, they're being re-commerced immediately," Friez said. "We're doing a level of editing on the returns to kind of filter out items that may be unsellable, and then we have a reprocess prompt to get those items back and sell them as soon as possible. That's been hugely successful for us to help reduce markdowns and raise [Average Unit Retail] on the resale of goods."

With all ballooning returns come multiple cost and environmental consequences. "We have to really figure out how to make [reverse logistics] cost-effective, and as always, it comes with scale," Sarah Clarke, chief supply chain officer of PVH Corp, said in an NRF panel. "The mathematics around profitability are changing dramatically. We're moving to much bigger, broader assumptions when it comes to profitability than we have done in the past."

As Under Armour Chief Operating Officer Colin Browne noted, reducing costs of reverse logistics can be a competitive advantage for the players who can do it. "It's a nonnegotiable," Browne said. "If you want to play in today's world, you've got to figure it out."

Surging demand, lagging supply

With consumers returning to stores and spending at high rates, demand is up. The return to something like normalcy domestically presents its own set of challenges for supply chains, however.

In some areas where goods are made, countries are struggling to secure vaccines and contain the COVID-19 pandemic within their borders, which could slow the production of goods. At the same time, shipping capacity has been limited relative to demand, raising freight prices astronomically in many cases.

"There does seem to be some revenge shopping going on out there," Browne said. "For those of us that are looking to source products from the other side of the world, we all know the problems in transportation and logistics. Just getting containers in time is incredibly difficult. And so I think it's going to put some real pressure on supply chains to deliver against that. We're all trying to get ahead of it."

Clarke's PVH Corp. is a fairly useful case study in how retailers and brands are handling the year.

On the company's most recent earnings call, Chief Operating and Financial Officer Mike Shaffer said the company's estimates for fiscal 2021 don't include any assumptions about new COVID-19-related closures or lockdowns, according to a Seeking Alpha transcript. At the same time, PVH is monitoring "industry-wide supply chain headwinds." The company is building in four- to six-week inventory delays, and additional air freight and other costs into its financial outlook for the year.

Looking ahead, Clarke said at the panel, "I think we're still going to be living through higher prices and shifting consumer behavior — and the change in agility is going to be the name of the game."

A lot of retailers had no choice but to pause returns at brick-and-mortar locations during state-mandated COVID-19 shutdowns. But now that those same states are opening up, what will happen to pent up return demand?

According to a survey conducted by Optoro of more than 2,000 U.S. residents in May, more than a third of respondents were holding on to at least one return while stores were closed. The survey also found 60% of respondents think they’ll feel safe to go back into stores when they re-open.

"We very much expect a flood of returns coming back in," Larisa Summers, senior VP of marketing at Optoro, told Supply Chain Dive in an interview.

With nearly all 50 states in some stage of reopening, retailers and operations managers must prepare by tapping into reverse logistics technology and addressing worker safety to meet a surge in returns demand.

Lean on data and peak season lessons

While the COVID-19 pandemic is a unique situation, the retail atmosphere it has created is not. It’s like holiday returns in June instead of January, Nate Barad, director of product marketing and strategy at Episerver, told Supply Chain Dive in an interview.

"They have experience with piles and piles of returns and piles of people trying to return things," he said, adding that retailers should lean on the same technologies and processes they use to process holiday returns and mirror those practices.

Data can help. "The most sophisticated retailers use algorithmically, data driven software," Summers said. "When returns come back in, they can scan the return, [assess] what condition it’s in, and their software system can automatically tell them what to do with that particular good at that particular moment based on a variety of different data points."

Those data points include what the item sells for new, what it sells for on the secondary market and what generation technology an item is or has. Retailers can then decide if they want to sell it new at full price, sell it at a deep discount, resell it to a discounter, recycle it or liquidate it.

This kind of data-driven technology is also key for items returned at brick-and-mortar locations that are typically sold online only and not in stores, said Summers.

Some retailers are also shifting their traditional retail timelines to accommodate this year’s shopping habits and allowing time for items that have been in warehouses or returned to still sell. Nordstrom has pushed back its Anniversary Sale from July to August, "as we expect a heavy promotional retail environment through July," Nordstrom CEO Erik Nordstrom said in the company’s Q4 earnings call.

"It looks like it was pushed from July to August to allow for additional time to work through current inventory," Carlos Castelán, founder and managing director of The Navio Group, told Supply Chain Dive in an interview.

Warehouse capacity has contracted as retail inventory sits idle due to low demand, but experts did not express concerns over having enough warehouse space to manage reverse logistics.

Warehouse safety in returns

Retailers must create safe procedures for warehouse workers. "The first thing is going to be to consider safety and how you balance recommended guidelines or establish procedure that’s going to be different," said Barad. "Is it going to be a six feet distance or are we going to practice 10?"

Retailers must make a clear statement that safety comes first in warehouses, not only because it’s the right thing to do, but also to attract workers.

Barad anticipates a renewed focus on hiring and training "because the same people you furloughed may or may not be available to come back," he said. Warehouse managers can train new employees by using digital e-learning to get them trained as quickly and as safely as possible.

"You’ll have to match the curve of reopening demand with the curve of re-educating your staff," he said.

Castelán also said temporarily changing return policies can help with a glut of returns and the labor needed to handle them. "Let’s say a company set up a policy for 30 or 60 days for anyone to send a product they purchased in 2020 back," he said. "You can surge labor to process that."

That labor can then be dispersed, reallocated or retained because those workers might be necessary to handle how we shop now. "E-commerce has taken off during this time," Castelán said. "So how do you continue to fulfill those orders but also dedicate team processes to address reverse logistics?"

In its survey, Optoro found 31% of consumers mailed in a return during quarantine, despite nearly half of them stating that they typically return to a physical store. In addition, 44% said they will continue to return items in the mail.

Summers said retailers should watch this behavior closely in case it changes their reverse logistics in the long term, and not just during the COVID-19 pandemic.